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Payable-on-Death Accounts – Commonly Asked Questions

May 27, 2014Probate and Probate Avoidance

As more people develop estate plans primarily focused on avoiding probate, the use of payable-on-death bank accounts continues to rise. Payable-on-death (POD) accounts are a special kind of bank account that can be used to effectively avoid probate in many cases. However, before you choose to include such accounts as a part of your estate planning efforts, you should be familiar with what they are and how they work. Here are some commonly asked questions that can help you understand payable-on-death accounts.

What is a payable-on-death account?

Basically, a payable-on-death account is a bank account that allows you to name a beneficiary who stands to inherit the account funds immediately upon your death. Payable-on-death accounts are, in this way, very similar to life insurance policies. When you create your POD account you get to choose the beneficiary. That beneficiary has the legal right to inherit the money you hold in your account after you die. This transfer takes place outside of the probate process.

This is very similar to how a life insurance policy works. Upon your death, the life insurance beneficiary you named in your policy will receive the payout, and will do so outside of probate.

It’s important to note that payable-on-death accounts are sometimes referred to by a variety of terms depending on the financial institution, or the state in which you live. Payable-on-death accounts can, for example, also be known as revocable bank account trusts, tentative trusts, Totten trusts, or beneficiary designation accounts.

Does the beneficiary have the right to use the money while I am alive?

No. When you create your payable-on-death account you retain the ability to use that account in any way you see fit while you are still capable. Simply naming a beneficiary doesn’t automatically give that person the right to have any control or influence over how you want to use the account while you are alive. A beneficiary designation is simply a way to identify the person you want to receive your money after you are gone.

How does a beneficiary receive the money from my account?

If you were to have a simple bank account that does not name a beneficiary, your money would first have to go through the probate process. This process can be lengthy and cumbersome, and must comply with some very specific legal requirements imposed under state probate codes.

On the other hand, transferring money from a payable-on-death account is much simpler. After you die, the beneficiary will simply have to prove to the financial institution that you have died. Once notified of your death, the bank will then transfer the money in your account to the named beneficiary.

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Raymond German, Estate Planning Attorney

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